ALTA® Annual Convention Coverage - Monday October 20, 2008

October 20, 2008

Friday, October 17, 2008Fannie Mae Chief Economist Doug Duncan kicked off the morning General Session on Day Two of the Annual Convention with an economic update.

Starting with the good news, household formation rates are proceeding faster than new home construction. Housing starts are at the lowest point in 26 years and supply will continue to decline into next year. Meanwhile, the U.S. workforce will continue to grow through 2050.

Private payroll employment started to decline in Dec. 07, with a loss of 3 million jobs and another one million projected. Job loss was attributed to the housing market up until two months ago, when unemployment broadened to other sectors.

Duncan reported a major shift in consumer behavior--the tightening credit market is forcing people to save. The shift from credit spending to household saving will lead to a deceleration of consumer spending and a slower growth rate.

"Retail sales have dropped off the cliff in the last two months," said Duncan. "The good news is that energy prices have come down to where they were a year ago. There is a seasonal pattern of higher mortgage delinquencies when home heating costs go up."

The home foreclosure rate is the highest since the Great Depression, rising steadily since 1979, with a sharp increase beginning in 1st Q 06. Foreclosures nearly tripled, from .4 percent of all mortgages to 1.2 percent, between 1st Q 06 and 1st Q 07. California, Nevada, Arizona and Florida have been hardest hit, with foreclosures at 1.5 percent of all mortgages in 2nd Q 08.

Gordon Bethune, former CEO of Continental Airlines, gave a highly energized and humorous talk about how he turned around the troubled airline. The 10th president in 10 years, employees were skeptical when Bethune took over. The airline was in 10th place in on-time arrivals/departures. And morale was in the ditch.

The company had a "rag tag" fleet of seven different kinds of airplanes. Twenty percent of Continental's flights were cash negative. There were products, such as "Continental Light," that customers hated.

"We were doing 20 percent too much flying and had 20 percent too many airplanes," said Bethune. "You have to fly places people want to go, when they want to go, and stop doing things that don't make money."

His first mission was to develop a "forward plan," and his second mission was to get employees to buy in.

He started communicating with people. He sent out daily updates on the company's stock, on-time rating, industry updates, etc. Communications were posted on bulletin boards, broadcast in emails and left in voice mailboxes, and employees were encouraged to leave messages for him.

He launched an employee bonus program where every employee in the company received a check for $65 if the company moved into one of the top five positions for on-time departures/arrivals. In one month the company moved from 10th place to fourth place. The following month they were in first place.

"The dynamics change when everyone wins," said Bethune.

Bethune gave a hypothetical example of a flight attendant who discovers the catering delivery was 20 meals short before a flight. Previously, the flight would have been delayed for half an hour while passengers waited for the additional meals to be delivered. With the new incentives, the attendant now says, "don't ever do this to me again" and slams the door.

"She knows she can probably find 20 people willing to trade food for booze," Bethune joked.

Bethune drew a parallel between fishing and motivation. To motivate the fish, you have to figure out what's in it for the fish. What do they like?

"If you want people to bust their butt for you, you have to let them share in the rewards."

So Bethune instituted an employee profit sharing plan.

During the East Coast blackout of 2003, American Airlines cancelled 200 flights. Continental cancelled 7. Employees met people at the curb with flashlights, checked bags with flashlights. When people found out Continental was flying they rushed the airport. The airline made $2 million that night.

When people asked Bethune why they flew, he said "because our people wanted to."

TIPAC DEBATE: "What's on the Horizon in the Political and Regulatory Environment"

There was a rousing political debate between Republican strategist Grover Norquist and Democratic strategist Richard Goodstein on the upcoming election, moderated by ALTA Board Member Chris Abbinante with Old Republic Title.

Norquist is president of Americans for Tax Reform, a coalition of taxpayer groups, individuals and businesses opposed to higher taxes at the federal, state and local levels. Norquist is author of the book, Leave Us Alone--Getting Government's Hands Off Our Money, Our Guns, Our Lives.

Goodstein is principal of Goodstein & Associates, and has represented clients in industries ranging from industrial gas and energy to high tech to healthcare. He is regularly featured on CNN, BBC, MSNBC, and Fox News Channel. He was active in the Hillary Clinton Presidential campaign.

Norquist and Goodstein each made the case for their Presidential candidate. Although both agreed that anything can happen in the final two weeks leading up to the election, Norquist conceded that Obama would likely win the race for the Presidency.

Both blamed the other party for the current economic crisis. Goodstein said Clinton inherited the debt from the Reagan administration and created a robust economy--the stock market was up, employment was up, the deficit turned to surplus, and the country was respected around the world. Norquist credited the Republican majority for the economic boom during the Clinton administration, and blamed the current Democrat majority for the current crisis. Norquist said that people want government to leave them alone and get out of their way. Goodstein asked: Did the people of Katrina want to be left alone? Did the people who were poisoned by products from China want to be left alone? Do the people with asthma breathing in dirty air want to be left alone?